The geometry of Concordian economics is better evaluated when put in relationship with the geometry of classical and neoclassical economics, which as seen in the following Slide 1 (after page break) is built on points and lines, lines resulting from the disconnected measurements of comparative statics.
This geometry, as is well known, yields a black box:
The central figure of Concordian economics is given in the following Slide 2, in which the entire economic process is observed at a glance. It represents the equivalence of the Production of real wealth (aggregate supply) to the Distribution of ownership rights over real and monetary wealth and to the Consumption or expenditure of monetary wealth (aggregate demand).
This figure indicates that a cycle of the economic process is completed when the entire production of the period is sold to the consumer. Then an exchange occurs between money and real goods. For this exchange to occur, both the producer and the consumer, in an ordered society, must be the legal owners of the wealth they exchange.
The full potential of the geometry of Concordian economics is realized when this figure is seen as a dynamic representation of the economic reality. In other words, one needs to rotate at ever increasing speed each rectangle in Slide 2 about its geometric center. The Distribution Process can also be represented as enclosed in a rectangle.
One then obtains the image of three circles rotating around each other, as in a Venn diagram. And what is a circle if not a two-dimensional image of a sphere? Then, assuming perfect equilibrium in the system, one obtains the vision of three intercompenetrating spheres rotating inside each other.
On this assumption, a projection of the development of these three basic values over time would yield three lines conflated into one—just as in mainstream economics. (It is not generally realized that any demand and supply analysis yields three points: the point on the supply curve, the point on the demand curve, and the hidden point of the conflation of demand and supply.)
A more realistic assumption of Concordian economics is that these values differ over time. Thus one can assume that the trend line of the values of distribution of ownership rights (DO) tends to remain rather constant over time; however, because of the relative ease of creation of monetary values, the trend line of the monetary wealth (MW) tends to grow at a faster rate than the trend line of real wealth (RW), up to a certain point when it collapses, as indicated in the following figure:
It is through reasoning and calculations such as these that one discovers “the bubble” and consequently can develop policies to reduce the amount of lost real income suggested by areas a and alternative areas a’ and a’’.
The beginning of analysis in Concordian economics occurs not only on these overarching issues of theory and policy but in the discovery of the details of the economic process by disaggregating each one of the three major processes of Slide 2 into their component elements. The comprehension of this stage of Concordian economics is facilitated by prior understanding of Austrian economics (see esp. Hayek, 1935), in which the exchange occurs as a consequence of variations in relative prices that prevail in differentiated markets for money and consumer goods, capital goods, (and goods to be hoarded). One then obtains:
These disaggregated components of the economic process are put back together again at the moment of the exchange of each one of them for the corresponding value of monetary with real wealth (again, both agents are the owners of the wealth they exchange), as in the following figure:
This figure strongly resembles a well known figure in the physical sciences, the image of a strange or a Lorenz attractor: Will detailed econometric analysis confirm the existence of this similarity?
A Method for the Transformation of Keynes’ Model
Articles in this series:
- Concordian Economics, Part 1: Intoduction
- Concordian Economics, Part 2: Geometric Representation (this article)
- Concordian Economics, Part 3: Mathematics (to be posted)
- Concordian Economics, Part 4: The Business Cycle (to be posted)
- Concordian Economics, Part 5: Analysis and the Black Box of Saving (to be posted)
Symbols, Meanings, and Definitions
Symbols in Concordian economics
ERs = energy-units
MUs = matter-units
VUs = value-units
H = hoarding
P = production of all real goods and services
D = distribution of ownership rights over real and monetary wealth
CG = consumer goods
KG = capital goods
GH = goods hoarded
OCG = ownership of consumer goods
OKG = ownership of capital goods
OGH = ownership of goods hoarded
EP = economic process
PED = principle of effective demand
npW = nonproductive wealth
pW = productive wealth
MY = monetary income
E = expenditure
Eh = expenditure to purchase goods to be hoarded
Ek = expenditure to purchase capital goods
Eg = expenditure to purchase consumer goods
If = expenditure on fixed capital
Iw = expenditure on working capital
Ck = expenditure on capital goods
Cg = expenditure on consumer goods
p = rate of change in total production
d = rate of change in the values of distribution of ownership rights
c = rate of change in total expenditure
r = the rate of interest
d = existing distribution of values of ownership rights
mec = marginal efficiency of capital
YL = labor income
rW = income from ownership of real and monetary wealth (capital income)
R = rent from land and natural resources
w = value of real wealth
m = value of monetary wealth.
Meanings in Concordian economics and mainstream economics
Y = income produced and consumed in mainstream economics
Y = income produced, distributed, and consumed in Concordian economics
C = consumption or expenditure to buy consumer goods in mainstream economics
C = consumption or any type of expenditure in Concordian economics
S = saving means literally 100,000 things in mainstream economics
S = saving means financial savings in Concordian economics
I = investment is equal to saving in mainstream economics
I = investment is all productive wealth in Concordian economics
Definitions in Concordian economics and mainstream economics
Note: This series has been adapted from Beyond Keynes …. Toward Concordian Econometrics, International Journal of Applied Economics and Econometrics, Part III of the Special Issue on J.M. Keynes, Vol. 20, No. 1, Jan-March 2012, pp. 248-277. The references for this work are listed at the end of that paper.